Fossil fuels and the resource curse

Territorial disputes over fossil fuel resources are not at all uncommon. In Iraq, Mosul and Kirkuk are contested because of the oil fields around them. The East China Sea has been the location for multiple disputes over gas, between Japan and China. The Spartley Islands in the South China Sea are disputed over largely because of fossil fuel resources, as may become the case with the Falkland Islands again. Allegations of horizontal drilling into Iraqi oilfields provided the pretext for Saddam Hussein’s invasion of Kuwait. Likewise, Nigeria’s Delta State is a hotbed of conflict. And so on, and so on, around the world.

While a world that is not dependent on fossil fuels is a long way off, it is worth mentioning that a reduction in the bitterness of such conflicts is a likely outcome from states replacing their fossil-fuel-driven energy systems with those based around renewable and zero-carbon forms of energy. Even if states that produce oil and gas continue to use it, diminished demand from other states would reduce prices and thus the incentive to go after all available fossil fuel reserves. Without billions of dollars in investment from international oil and gas firms, many of these resources would stay underground where they can induce neither conflict nor climate change. By making fossil fuels less valuable compared to other resources, decarbonization could help to reduce the harm done by the ‘resource curse‘ – the idea that rich stocks of natural resources can make states prone to corruption, conflict, and mismanagement.

None of this is to say that there is a clear and direct link between the move towards renewable power and decreased conflicts over resources. Indeed, there may even be conflicts over new kinds of resources as new forms of energy grow in prominence. Still, it doesn’t seem unreasonable to hope that the transition of the global economy towards carbon neutrality could help draw some of the venom out from these conflicts and allow people to focus their attention on less self-destructive undertakings. That would be all the more welcome, given the extent to which stresses from climate change may exacerbate conflicts in other parts of the world.

Iraqis may at last be on their way to the petro-prosperity they’ve waited so long to enjoy. They should be careful what they wish for.

Like one of those perverse twists in the tales of “The Arabian Nights” (many of which, you will recall, took place in Baghdad and Basra), modern Iraq’s greatest source of prosperity—its vast reserves of oil and natural gas—could also be the biggest long-term threat to hopes for democracy.

Yes, on Sunday the Iraqis once again proved bravely, stubbornly, even astoundingly that they won’t be kept away from the polls by mere car bombs and mortar shells. But by and large they were voting for the same coterie of politicians who’ve made Iraq among the five most corrupt nations in the world. The country’s near-term future is just about waiting, after the election, for a new government to take shape over the next many weeks. But its long-term future could be haunted by what Stanford professor Larry Diamond calls “the oil curse.”

How much oil are we talking about? Even after years of embargo, occupation, and civil war that weakened its production capacity, Iraq was the third-biggest producer in OPEC in January, according to the trade journal Petroleum Economist. The 2.45 million barrels it pumped every day, on average, would have brought in roughly $172 million—every day. In another three or four years, now that development contracts have been agreed with several major Western oil companies, that production could double, racking up income on the order of $125 billion a year. And that doesn’t even begin to calculate the billions in revenue from largely untapped natural gas deposits. But …

“Not a single one of the 23 countries that derive most of their export earnings from oil and gas is a democracy today,” Diamond noted in an essay earlier this year. Especially in Arab countries, the fabulous riches that come from under the ground tend to create overbearing governments with apathetic citizens. “In these systems, the state is large, centralized, and repressive,” Diamond wrote. Societies are usually “intensely policed” because “there is plenty of money to lavish on a huge and active state-security apparatus,” and bureaucracies are “profoundly corrupt.” They tend to see the money that pours into state coffers as everybody’s and nobody’s, and therefore more or less free for the taking. The public pays no taxes in the richer states, and in the view of the entrenched potentates no taxation means no need for representation.

Crude diplomacy
Iraq has ambitious plans for its oil industry. That could have important implications for Iran and the rest of the region
Feb 18th 2010 | BASRA AND UMM QASR | From The Economist print edition

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Iraq is now trying to recover its glory, with plans to quadruple production or more. This could transform the global oil industry; it also threatens two other founding members of OPEC. Saudi Arabia might have to share its leadership of the organisation and Iran faces an even greater setback. Close relations with China, based on Beijing’s thirst for oil, have helped Iran to avoid isolation over its nuclear programme. But Chinese oil companies are now turning their attention to Iraq, with American backing.

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Over the next seven years Iraq intends to go from producing 2.5m barrels per day to 12m b/d, a target that exceeds Saudi Arabia’s current output by more than 30%. To this end, Iraq has signed ten deals with most of the world’s top oil companies. Some got down to work this month.